Symbiosis of occupational pension schemes and occupational health insurance plans

The shortage of skilled workers is a challenge that many companies have to face. Retaining good employees and attracting new ones has become a difficult task for companies. Against this background, companies should seriously consider whether or not they want to do more for their employees than simply meet the legal requirements such as the legal right to deferred compensation with the employer’s compulsory subsidy. For example, a higher subsidy for deferred compensation or a purely employer-financed occupational pension scheme can be an effective first step towards improving a company’s position in the battle for skilled workers. If such measures are combined with an occupational health insurance plan, the result is a modern scheme for retirement provisions that sets employers apart from their competitors and gives them a clear competitive advantage in the highly competitive labour market. But other stakeholders, such as insurance providers, also benefit from a dovetailing of these two means of making provisions.

Occupational pension scheme

An occupational pension scheme is a promise made by an employer to an employee to make provisions for the employee’s old age, invalidity or surviving dependants due to the person’s employment relationship (Section 1(1) of the German Act on the Improvement of Occupational Pensions (Betriebsrentengesetz, BetrAVG)). It is also possible that the employee waives a part of their gross salary and pays this as a contribution into a pension scheme. In this case, the employee reduces their income tax and social security contributions, provided that the tax-free maximum amount and the gross remuneration do not exceed the income threshold for the health insurance and statutory pension scheme. In addition, the employee receives an allowance for their deferred compensation from the employer. In fact, the latter was obliged to do so with the enactment of the Occupational Pensions Strengthening Act of 2018. The subsidy for deferred compensation amounts to a flat rate of 15 per cent of the deferred compensation amount or in the amount of the actual savings in social security contributions.

Tax on the pension benefits is only due when the beneficiary pays out the pension benefits. In addition, contributions to health and long-term care insurance must be paid by persons with statutory health insurance.

Occupational health insurance

Occupational health insurance is when the employer takes out an insurance policy with a private health insurance provider in the name of the employee.

The employer pays the contributions. However, the employee’s net salary can also be used to cover these contributions. How the employer commits to the scheme determines whether it is a payment in kind or in cash and, if applicable, how the employee pays tax on it.

Elements in common and differences

The two means for making provisions, the occupational pension scheme and the occupational health insurance plan, have elements in common and differences. The following is an excerpt:

Elements in common

• Building block in employer branding strategies
• Support the retention and recruitment of employees
• Labour law design, required by contractual commitment
• Often within the framework of collective agreements
• Employer pays the contributions to the insurance provider
• Insurance provider provides the agreed benefits
• Supplements the statutory coverage
• Reduction or closure of insurance gaps

Differences

• Design of collective agreements
• Taxation of insurance benefits
• Payment of benefits
• Added value is noticeable earlier for the employee in the case of an occupational health insurance plan. In the case of occupational pension schemes, this may also be the case, for example, if there is coverage for occupational disability or incapacity to work. However, in the case of pension provision at retirement age, the added value is only apparent much later.
• Proof of the occurrence of a benefit case varies in complexity.

Symbiosis of occupational pension schemes and occupational health insurance plans

Although occupational pension schemes and occupational health insurance plans have differences, the elements in common provide an argument for considering the two means of making provisions as interconnected models for preparing for old age. After all, this provides added value for all parties involved. Employers can highlight their achievements through active communications, retain employees and attract potential new recruits to the company. Employees benefit from the commitment to the benefits, as gaps in old-age provisions are reduced or even closed.

Insurance providers benefit from the same target group of both means for making provisions and can derive measures. This includes, for example, the concentrated development of combined products, the design of administrative processes and consideration in the marketing strategy. The insurance provider can also set itself apart from its competitors by implementing IT solutions that take into account the different legal frameworks, also regarding taxes, for example. In addition, communications with the policyholders can be facilitated, for example, by implementing or expanding a customer portal. Administration of policies can be made more cost-effective and turnaround times for processing incidents can be reduced, also by using so-called ‘dark’ or batch processing. A positive consequence is also the reduction of the employer’s administrative burden.

Deciding for or against an IT solution

A number of IT solutions come into question for everyone involved, regardless of whether it is an employer or an insurance provider. Which of these are possible options and, above all, useful, depends on a number of factors. For this reason, it makes sense to develop and implement customised IT solutions. And this is best done with highly trained and experienced employees who have technological expertise and exceptional (industry) technical and business knowledge.

You can find more exciting topics from the adesso world in our previously published blog articles.